The Mexican Peso is up 11% vs the US Dollar, YTD 2017, as the currency has been experiencing a hefty correction since it began to fall after President Donald Trump’s electoral victory.
Investors had been bearish on Mexico’s economic growth prospects ever since the President clinched the nomination of the Republican party last summer. The general consensus then was that the Trumpster’s agenda to shift manufacturing jobs away from Mexico, as well as other anti-Mexican rhetoric like the border wall, would depress the economy of our neighbors to the south.
However, a new lease of life breathed into the currency from hedge funds has caused the Peso to become the best performing currency in the world this year thus far. The rationale that drove the bullish trend was the idea that the sell-off had been too severe and not taken into consideration the intrinsic value of the underlying asset, especially when Trump’s talk could have little to no effect on Mexico’s growth.
According to the IMF, Mexico is expected to grow 2.3%, which is slightly faster than the expectation for the US economy, which is projected at 2.2%.
David Tawil, co-founder of New-York based Maglan Capital, which is betting on Mexican equities, told Bloomberg news that the Trump administration would be too busy defending Russia allegations to take any action that would harm the Mexican economy.
His words: “It is becoming even more likely that the administration will have to spend time and resources on explaining and defending that episode, further diminishing its political capital necessary for reforming the relationship with Mexico and Nafta.”
President Trump’s comments in January on the dollar being too strong has signaled to some investors that it may be time to hedge against any currency risks.
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